BRCM: Barclays Cuts to Sell on Weaker Chip Outlook

By Tiernan Ray

As I mentioned this morning, Barclays semiconductor analyst Blayne Curtis today cut his rating on chip stocks overall to Neutral from “Positive” following terrible Q1 personal computer estimates issued last night by IDC and Gartner.

“The growth profile in semis is much slower than many expect (low single digits vs. the 7-8% 20yr trend line),” writes Curtis.

“We do recognize that the macro environment is likely to improve, but given this lower growth profile, we see a much smaller potential snapback in earnings.”

Curtis cut his rating on shares of Broadcom (BRCM) to Underweight from Overweight, deciding that the company’s “connectivity” chips — WiFi and the like — may find themselves pushed aside by “platform” product offerings that incorporate that ability.

Curtis sees a shrinking addressable market for chip makers as functionality that was discrete is consolidated:

We see a slower growth profile in semis than many expect as PCs are in decline, Mobile is maturing, and Consumer has no new product cycles. The move to digital audio/video and the rise of powerful smartphones /tablets is shrinking the overall semi TAM as whole product categories are being consumed. Many cyclical investors argue that semis are cheap at 16-18x CY14 earnings as they believe the Industry will snap back to the 20yr CAGR of 8%, but we argue that the growth rate is slowing and is much closer if not even on the trendline already.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.